Department of Health and Human Services

Division of Medical Assistance

Prescription Drugs

Susan Jacobs

Fiscal Research Division

March 19, 2013

March 19, 2013 2

What are the Long-Term Goals for Medicaid?

• What does the General Assembly want in a Medicaid

Program?

• Is the current program designed to meet legislative

expectations and achieve long-term goals?

• Should the state, providers, and recipients share in the

financial risk?

• Paying for Value: Are current payment policies

designed to reward better outcomes?

Balancing Act: Access/Quality/Cost

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Presentation Outline

Overview

Historical Expenditures

Initiatives in Other States

March 19, 2013 4

Medicaid Prescription Drugs

In a fee-for-service payment model, payment elements include:

Ingredient Costs (Brand)- The federal government has restrictions on

how states can pay for drugs. On average the reimbursement amounts for

drugs should not exceed the estimated acquisition cost plus a dispensing fee

or the provider’s usual and customary charge to the public for the drug.

Most states reimburse based on list price.

Dispensing Fees- Paid by states to pharmacies in addition to the ingredient

cost. Rates vary significantly across all states and represents a small

percentage of total prescription drug expenditures nationally and in North

Carolina.

Drug Rebates – A mandatory national drug rebate agreement between

manufacturers and the U.S. Department of Health and Human Services.

Savings from the rebates are shared between the federal and state

government. Some states have implemented supplemental rebate programs

with manufacturers to achieve additional savings.

Medicaid Prescription Drugs Ingredient Costs

Average Wholesale Price (AWP):

• The list price from the wholesaler to the pharmacy, but does not

represent the actual price paid because of negotiated discounts.

• Historically states have used AWP because it was the only

information readily available.

• In 2011, the Office of the Inspector General issued a report that

found that using method was “fundamentally flawed” and had

“resulted in states paying too much for drugs in the Medicaid

program”.

Source: U.S. Department of Health and Human Services-Office of Inspector General “Replacing Average

Wholesale Price: Medicaid Drug Policy” July 2011

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Medicaid Prescription Drugs Two Alternatives to Average Wholesale Price

• Wholesale Acquisition Cost (WAC) – The manufacturers

list price to wholesalers. Currently used by North Carolina

as well as other states.

• Average Acquisition Cost (AAC) – A new benchmark

currently used in three states. This method is based on

actual drug costs obtained from surveys from pharmacies.

The Centers for Medicare and Medicaid Services is

encouraging states to use this method.

Source: The Kaiser Commission on Medicaid and the Uninsured “Managing Medicaid Pharmacy Benefits: Current

Issues and Options”, September 2011.

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Medicaid Prescription Drugs Wholesale Acquisition Cost

Wholesale Acquisition Cost (WAC): In June

2010, the American Medicaid Pharmacy

Administrators Association and the National

Association of Medicaid Directors recommended

that states use WAC as a temporary payment

method until a better method is available.

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Medicaid Prescription Drugs Average Acquisition Costs

Average Acquisition Costs (AAC):

Alabama was the first state approved by the

Centers for Medicare and Medicaid Services

to switch to this method. Using this method,

states require that randomly selected

pharmacies submit invoices. States then use

this information to determine AAC.

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Medicaid Prescription Drugs Single National Benchmark

National Average Drug Acquisition Cost

“The Centers for Medicare and Medicaid Services (CMS) has contracted with

a national certified public accounting firm, to conduct surveys of drug

ingredient costs from both independent and chain pharmacies in the United

States, and to develop a national pricing benchmark”.

“The purpose of this initiative is to perform a monthly nationwide survey of

retail community pharmacy prescription drug prices and to provide states with

on-going pricing files. We expect that these pricing files will provide state

Medicaid agencies with an array of covered outpatient drug prices concerning

acquisition costs and consumer purchase prices. State agencies can use this

information to compare their own pricing methodologies and payments to

those derived from these surveys”.

Source: Draft Report – The Centers for Medicare and Medicaid Services: “Draft Methodology for Calculating

the National Average Drug Acquisition Cost”.

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March 19, 2013 10

Historical Expenditures

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Medicaid Prescription Drugs

Historical Expenditures – Total Funds

Source: Department of Health and Human Services, Division of Medical Assistance.

Fiscal Year

Prescription

Drugs

Dispensing

Fees Rebates

Net Total

Expenditure 2003 $ 1,211,655,124 Data Not Available 246,899,590 $ 964,755,534

2004 $ 1,481,226,912 Data Not Available 293,439,382 $ 1,187,787,530

2005 $ 1,648,039,897 Data Not Available 386,541,375 $ 1,261,498,522

2006 $ 1,385,039,301 Data Not Available 468,298,954 $ 916,740,347

2007 $ 934,276,607 Data Not Available 282,401,095 $ 651,875,512

2008 $ 986,504,775 $ 67,541,199 311,705,952 $ 742,340,022

2009 $ 1,065,558,422 $ 71,617,164 332,550,212 $ 804,625,373

2010 $ 1,057,077,053 $ 76,477,157 434,577,331 $ 698,976,879

2011 $ 1,137,850,317 $ 78,496,396 537,654,508 $ 678,692,205

2012 $ 1,217,315,028 $ 87,859,905 654,032,641 $ 651,142,292

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Medicaid Prescription Drugs

Historical Expenditures*

$1.10 $1.14 $1.13 $1.22

$1.31

$-

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

2008 2009 2010 2011 2012

Total Expenditures

Drug Rebates

Net Expenditures

In Billions

Source: Department of Health and Human Services, Division of Medical Assistance. Total expenditures

includes dispensing fee expenditures.

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Medicaid Prescription Drugs

Dispensing Fees

Claims per Quarter Rate Claims per Quarter Rate

Tier 1 Greater than 82% $7.75 80% or more $7.75

Tier 2 Between 77.1% and 82% $6.50 Between 75% and 79.9% $6.50

Tier 3 Between 72.1% and 77% $4.00 Between 70% and 74.9% $4.00

Tier 4 Less than or equal to 72% $3.00 Less than or equal to 69.9% $3.00

North Carolina Medicaid Generic* Drug Dispensing Fees**

Effective July 1, 2013Effective October 1, 2012

** Paid to all providers for initial dispensing and excludes refills within the same month for the

identical drug or generic equivalent

* Brand-drug dispensing fee is $3.00

March 19, 2013 14

Medicaid Prescription Drugs

Dispensing Fees – Historical Expenditures

$67,541,199 $71,617,164

$76,477,157 $78,496,396

$87,859,905

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

$90,000,000

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

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Medicaid Prescription Drugs

Dispensing Fees

States are considering changes to dispensing fees.

Changes being considered include:

– Market rates; and

– Benchmarking to commercial plans, managed care

organizations, and Medicare.

Nationally, the Medicaid Program has historically paid

more for dispensing fees and ingredients that other

payers.

Source: The Kaiser Commission on Medicaid and the Uninsured, “Managing Medicaid Pharmacy Benefits:

Current Issues and Options”, September, 2011.

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Initiatives in Other States

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Medicaid Prescription Drugs Initiatives in Other States

• Average Acquisition Cost (Alabama, Idaho

and Oregon);

• Most Favored Nations (Georgia, Connecticut,

Massachusetts, and South Carolina);

• Mail Order; and

• Step Therapy.

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Medicaid Prescription Drugs Initiatives in Other States

Most Favored Nations: Requires that Medicaid will not pay a pharmacy more that

the amount paid by other third party payers or than paid by

the general public.

Medicaid Prescription Drugs Initiatives in Other States

Mail Order:

• Several states offer a mail order option for beneficiaries.

• In 2011, Pennsylvania passed Senate Bill 201 now Act

207. The intent of the legislation was to assure that

consumers received equivalent terms at individual

pharmacies as they do through mail order and eliminated

the lower co-pay advantage if purchasing through mail

order. However, this is only applicable if the pharmacy

will match the mail order rates.

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Medicaid Prescription Drugs Initiatives in Other States

Step-Therapy:

Some commercial insurers as well as state Medicaid

programs, have implemented this method to shift

patients to less expensive drugs.

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Questions?

Fiscal Research Division

Room 619, LOB

919-733-4910

www.ncleg.net/fiscalresearch/